GEICO Accused of Fraud in Arizona Class Action Suit
28 January 1999
GEICO Defrauds Policyholders By Mandating Dangerous 'Imitation' Auto Parts While Concealing Practice, Suit Alleges
PHOENIX--Jan. 27, 1999--Arizona auto insurer accused of fraud, insurance code
violations and racketeering in class action suit
GIECO Insurance, a subsidiary of Berkshire Hathaway and one of Arizona's largest auto insurers, is the target of a class action suit claiming the company systematically defrauds consumers by requiring auto repair shops use "imitation" parts when repairing vehicles owned by GEICO policyholders.
The lawsuit, filed today in Maricopa County Superior Court, claims GEICO violated the Arizona consumer fraud act, insurance codes, and RICO laws by forcing body shops and other repair facilities to use imitation parts and not disclosing that estimates were based on use of the cheaper imitation parts.
The suit seeks class action status, claiming GEICO's actions constituted a breach of contract with GEICO customers, whose policies state that repairs will be made using parts of "like kind and quality" restoring vehicles to pre-crash condition and cash value.
GEICO allegedly mandates the use of parts manufactured by third-parties that are not authorized, sanctioned or made by vehicle manufacturers. The suit claims that these imitation parts do not restore a car to original cash value, diminish its resale value, jeopardize the manufacturer's warranty and threaten the car's structural integrity.
"This is much more than a cosmetic issue; imitation parts may be a serious safety threat," said plaintiffs attorney Steve Berman of Hagens Berman & Mitchell. "Repair shops call these parts `Taiwan trash' for good reason -- they have substandard fit, crash resistance and mechanical operation. In a word, they are dangerous."
According to Berman, GEICO was aware of its obligation to pay for parts that restore policyholders' cars to pre-crash value, but repeatedly deceived its policyholders to reduce costs and increase profits. "Under Arizona state law, such a repeat misrepresentation for financial gain constitutes racketeering," he said.
The proposed class includes all GEICO policyholders nationwide whose vehicles were repaired using imitation parts. Among other damages, the suit calls for GEICO to reimburse qualifying class members for the actual cash value of their vehicles and to stop fraudulently installing imitation parts and concealing this practice from consumers.
According to Berman, in the cases in which GEICO did inform policyholders that imitation parts were used, it also warranted that the parts met generally accepted industry standards. "We know that most of these imitation parts fall well short of that standard," Berman said. "That is a huge issue when it comes to things like crash protection. If I buy a Ford truck, I don't want a Yugo fender."
Hagens Berman & Mitchell has offices in Phoenix and Seattle. The firm has concentrated its practice in the field of class action and multi-plaintiff litigation, representing plaintiffs in numerous consumer fraud actions throughout the country. The firm also acted as outside counsel for the state of Arizona in the recent tobacco litigation.
